Business travel rebound halted by slowing economy

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Business travel has recovered stronger this year than most industry analysts had predicted at the height of the pandemic, with domestic travel rebounding by this fall to about two-thirds of 2019 levels.

But in recent weeks, it appeared to have hit a new hurdle as companies tightened spending amid a slowing economy.

Henry Harteveldt, a travel industry analyst at Atmosphere Research, said corporate travel managers have told him over the past few weeks that companies have moved to ban non-essential business travel and increase the number of executives required to approve employee travel. He said he now forecasts a slight slowdown in business travel for the rest of the year and could remain tepid through the first quarter of 2023.

Harteveldt also said his conversation led him to believe that business travel will be “below the levels discussed by airline executives on third-quarter earnings calls.”

A little over a month ago, airlines were upbeat on these earnings calls. Delta Air Lines, for example, said 90% of its corporate customers “expect their travel to remain flat or increase in the fourth quarter.” United Airlines also said its strong third-quarter results showed that “enduring trends in air travel demand more than offset any economic headwinds.”

The hotel is also upbeat. Hilton President and CEO Christopher J. Nassetta said on its earnings call that overall occupancy in the third quarter had reached more than 73 percent, and business travel was showing momentum.

Sentiment has shifted as the economy has slowed more markedly. Tech companies, in particular, have been announcing mass layoffs. Home lenders have also been laying off workers as rising mortgage rates dent their business.

The travel industry has long relied on business travel for its consistency and profitability, with companies often willing to spend more than leisure travelers. When the 2020 pandemic almost completely halted business travel and people were forced to meet via conference calls, many analysts predicted the industry would never fully recover.

But business travel did come back. As the economy reopens, companies realize that in-person meetings serve a purpose. In a survey conducted by the trade group Global Business Travel Association in late September, business travel managers estimated that business travel by their employers in their home countries had returned to 63% of pre-pandemic levels, with international business travel at those levels. 50%.

One reason international business travel hasn’t returned strongly is that some employers have imposed restrictions on high-priced business-class tickets on long-haul flights, Harteveldt said. Employers are instead asking travelers to take cheaper connecting flights or direct flights in premium or regular economy, he said.

“Passengers are telling managers that if they have to go straight to a meeting when they arrive, they won’t fly economy long-haul,” Harteveldt said.

What will next year’s business travel look like?

Pandemic travel restrictions may play a smaller role. A survey released in October by Tourism Economics, the US Travel Association and JD Power found that 42% of business executives had policies restricting business travel because of the pandemic, down from 50% in the second quarter. More than half expect business travel policies related to the pandemic to be reassessed in the first half of 2023.

As Americans are able to work remotely, many are combining professional and leisure travel, airline and hotel executives said on recent earnings calls. That’s a big reason travel didn’t drop off in September, as it has in past years, when the holiday rush is over.

Jan Freitag, national director of hotel market analysis at CoStar Group, said hotel occupancy rates for business travelers currently vary by market, with high occupancy rates in markets such as Nashville, Tennessee; Miami; and Tampa, Fla. — business travelers are likely to A place for “leisure” travel. But in markets like Minneapolis, San Francisco and Houston, hotel occupancy rates for business travelers are low.

Freitag said lower hotel occupancy rates in some cities may reflect lower rates of returning to offices in those locations, which reduces the ability to hold in-person business meetings.

Freitag said he is “very bullish on group travel, conference travel, association events to build an internal culture.” He predicts these travels will recover faster than individual business travel.

“It’s all about building relationships,” he said. “It’s hard to do that online.”

Short-term business meetings and employee training sessions, on the other hand, are likely to continue to be held online, which are less expensive than in-person, said Grant Caplan, president of Houston-based consulting firm Procurigence. and events.

Even though business travel has resumed, hotels, airlines and airports are still understaffed. A survey of hoteliers released in October by the American Hotel and Lodging Association, a trade group, found that 87% of respondents were facing staffing shortages. While that’s an improvement from May, when 97 percent of respondents said they were short-staffed, the current survey results don’t bode well for smooth hotel check-ins.

Flight disruptions have been severe, especially in the US and Europe, especially earlier in the year, due to weather delays, insufficient crew, or air traffic control and security issues at airports.

Kathy Bedell, senior vice president of Americas and affiliate programs at travel management firm BCD Travel, said that while “we can’t say these disruptions are hindering business travel, they’re clearly complicating” the traveler experience.

Kellie Kessler, a drug clinical researcher in Raleigh, North Carolina, said she has faced too many travel disruptions this year. She recently switched jobs that required her to travel 10% of the time, up from 80% in her previous position.

“The reason I chose a non-travel role is because I can count on one hand how many flights I’ve had on time this year,” she said.

Flight disruptions have led some road warriors to become less loyal to airlines, even among those who have amassed elite status in airline frequent-flyer programs.

“Overall, the disruption has made me less loyal to any airline,” said Trey Thrifffiley, chief executive of QIS Aviation Group, a Savannah, Ga.-based consulting firm that advises individuals and companies on Advice for private jet use. He is also an elite member of the Delta, United, and American Airlines loyalty programs. “I didn’t search for a preferred airline or even the cheapest price,” he said, “I searched for a direct flight or a connecting flight to the city closest to where I live, from where I could drive home if needed.”

Despite optimistic forecasts from airlines, some experts see an extremely bleak outlook for business travel this fall and next year.

They said they could not accurately predict the strength of business travel and the trajectory of airfares and hotel rates because of many unknowns, including the length of the war in Ukraine and its impact on the European and global economies; rising gasoline and jet fuel prices; and Rising inflation, recession fears and political uncertainty.

Travel industry analyst Harteveldt said the recovery in business travel varied by geography, with the U.S. rebounding faster than Europe.

The Chinese government could use its reopening strategy “in a geopolitical way,” he said, adding that “if a country is more friendly, China will allow business and leisure travelers from that country, rather than travelers from countries more closely related to China.” Travelers from countries with great ties. Political differences.”

He predicts that 2023 will be a “difficult year” for business travel, unless the Ukraine war “ends abruptly and oil and jet fuel prices are more certain”. Another factor could be decisions by companies that may have added too many workers during the pandemic to save money by reducing business travel rather than laying off workers, he said.

“If there’s one symbol that can be used to describe the outlook for business travel in 2023, it’s a question mark,” he said. “No airline, travel management company or travel manager can be 100% sure what 2023 will bring right now. This is one of the most chaotic, chaotic periods in business travel, perhaps in decades.”

In a report published in August, BCD Travel’s director of research and intelligence, Mike Eggleton, had a similar take on the near-term outlook for business travel. “It is very difficult to make reliable travel pricing forecasts in the current environment,” he wrote. “The near-term travel outlook is more uncertain than ever. Volatility has never been higher and looks likely to continue. Markets There’s a big difference in performance and outlook.”

Going forward, perhaps the first question about business travel will be whether travel is necessary, Bedell said.

“Customer-facing and revenue-generating travel takes precedence over internal meetings,” she said.

This article originally appeared in The New York Times.

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